The situation in Ukraine, inflation, higher gas prices...these are all reasons to keep an eye on the euros in our wallets. The Monitor Consumentengedrag (Consumer Behaviour Monitor) shows that consumers' focus is increasingly on price, and that the brand seems to be less and less relevant. According to the BRiC score, which is about Brand Relevance in Category, it is precisely in uncertain times that a brand should become more important. However, price inflation seems to have put a stop to this. How do retailers deal with passing on higher costs? Do they apply the trick of shrinkage inflation or is it wise to communicate the price better? In other words: is shrinkage inflation the answer to the increasing price sensitivity among consumers? More information can be found in the Consumer Behaviour Monitor, an initiative of Validators and VU Amsterdam.
Compared to the corona crisis, more people think that the topic of corona is something brands should communicate about than the war in Ukraine. In the previous edition of the Consumer Behaviour Monitor, 43% of Dutch people thought that brands should adjust their advertisements to the current situation during the corona crisis. If we change this question to the situation in Ukraine, less people (27%) think that brands should adjust their advertisements. So the interpretation of the war seems less desirable for brands. In contrast to the corona pandemic, brand communication can also contribute little to a solution.
Although people now expect less from brands to adapt their advertising to the situation, more people think advertising is inappropriate at all (13%). During the corona crisis in April 2020, this percentage was lower; 8% of the Dutch population thought advertising was inappropriate then. In the pandemic, brands could show where they contributed to a solution, but no company wants to pretend they know a solution to a war. At the end of March, we already explained that communicating about war is only appropriate when it stays close to your brand's goal. If it doesn't fit, there is a danger of coming across as less credible. Read in the Article How the beautiful initiatives of VodafoneZiggo and NS seamlessly fitted in with their objective.
More focus on price after extreme inflation
Extreme inflation makes consumers focus more on price. The Dutch respond to the situation in Ukraine with higher sensitivity to price and lower brand relevance. When doing their shopping, Dutch people pay less attention to the brand of products than before (-8% compared to November 2021). The decline is especially noticeable among the lower educated, only 11% of them pay attention to brand (-8% compared to November 2021). For a large part of the Dutch population (61%), price seems to be an even more important reason to choose a brand (+4% compared to November 2021) and is also the biggest barrier not to consider a food brand (+4% compared to November 2021).
The change in spending as a result of the situation in Ukraine is also reflected in the Consumer Behaviour Monitor. 37% indicate that they spend less since the war and only spend money on necessities. Here, too, education and income show differences in percentages. 47% of the lower educated spend less money since the war and only spend money on necessities, against 33% of the higher educated. This is confirmed by income; 48% of people with an income up to 26,500 euro per year spend less money since the war and only on essentials. This percentage is much lower among higher-income Dutchmen (33%).
Noud Schartman, PhD student at VU University Amsterdam and Validators: 'In earlier research we saw that worries and uncertainty during the corona crisis give brands a stronger role. We saw from the rising BRiC score that brands were becoming more important in the purchase decision. In uncertain times, well-known brands provide some kind of foothold and strengthen the sense of risk reduction: a brand is trusted and you know that the quality is good. In this sense, the current concerns about the war, an economic crisis and our own situation seem to be a positive factor for brands. But since the BRiC is a relative score, it is not surprising that consumers are now prioritising their own wallets and letting price be the deciding factor. Still, marketers do not immediately have their backs against the wall. Not everyone will be affected equally financially, which means that this group will still hold on to its trusted brands. But even in these times marketers must continue to realise that brand building is about years. It goes beyond a snapshot of the current moment. A long breath and consistency in message are important success factors for brand growth.
Contractionary inflation; a price increase is not always noticeable
It is therefore clear that sky-high inflation, the hard-hitting increase in the prices of raw materials mean that brands have no choice but to increase their prices too. At the same time, the Consumer Behaviour Monitor shows that the price sensitivity of consumers is on the rise. So price is becoming more and more important in the purchase decision, but as a brand you are less and less able to meet consumers' needs. The big question that follows is: how do you deal with this as a brand?
A first option is to communicate more about price as a brand. By making smart use of the framing of price, even prices that are higher than before can be interpreted by consumers as a good deal. Yet there is also a danger here. It is possible that the competitor will start to communicate with lower prices, which will lead to a real price war. Dangerous territory when at the same time prices are rising, such a battle will greatly reduce profit margins. Another option is to put less in a package for the same price, or: shrinkage inflation. According to the Consumers' Association shrinkage inflation has been going on for years. Yet this seems like a bold choice; it could make consumers see through it and leave your brand on the shelf in the future.
Marcel van Brenk, Partner at EY VODW: "Marketers often balance on the thin line between responding to customer needs (e.g. by adapting the packaging to the moment of use) and deliberately disadvantaging the same customer in the perception of the customer ("marketing as a trick"). Adjusting the quantity and price with the aim of achieving a better customer experience and a higher margin is a marketing tool that certainly has value in normal times. In the current zeitgeist, however, it deserves particularly careful consideration. Recent examples, which simply offer less volume at the same price and in the same packaging, are in any case not going in the right direction.
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